Tax Treatment of Land Easement Transactions Rental Income vs. Sales Proceeds

According to the National Association of Tax Preparers the key to reporting transactions that involve land easements is to first determine whether the payment represents rental income or sale proceeds.  If the taxpayer was leasing a land easement for a specific period of time to (for example sake) a cellular provider, the taxpayer should be reporting payments received from the cellular company as rental income on IRS Form 1040 Schedule E under the presumption that once the lease expires the easement reverts back to the taxpayer.

If in this example the cellular company agrees to buy out the lease leaving the taxpayer with nothing other than legal title to the land, the transaction for tax purposes is considered a sale subject to capital gain/loss tax reported on IRS Form 1040 Schedule D

John R. Dundon, EA [720-234-1177,] Enrolled with the United States Department of Treasury to Practice before the IRS (Enrolled Agent # 85353). Under contract with the IRS as a Certified Individual Taxpayer Identification Number (ITIN) Acceptance Agent. A Federally Authorized Tax Practitioner (USC 31 Section 330 + IRC 7525a.3.A) regulated under US Treasury Cir. 230.

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Posted in Capital Gain, Capital Loss, Farm Tax, Rental Real Estate

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